All Things Forex's  Instablog

In the trading room today: What is Keeping the GBP Capped? With the GBP looking heavy and unable to build a strong momentum, we take a close look at the sterling and explain the reasons why the GBP is being capped against the EUR and the USD for the time being, we analyze the test of an important support level in the GBP/USD currency pair, we continue to monitor the range in the EUR/USD pair, we note the pullback of the USD vs JPY, we highlight the market’s reaction to the Japanese Retail Sales, the German Unemployment Rate, the U.K. CBI Distributive Trades, and the U.S. Consumer Confidence, we discuss new forecasts from Bank of New York-Mellon and Commerzbank, and prepare for the trading session ahead.

May 26, 2013 (Allthingsforex.com) - The Memorial Day holiday-shortened week ahead will keep the spotlight on the U.S. dollar and the Japanese yen as series of notable data from the United States and Japan will give traders an opportunity to assess the state of the world's first and third-largest economies.

In preparation for the new trading week, here is a list of the Top 10 spotlight economic events that will move the markets around the globe.

1. USD- U.S. Consumer Confidence, a measure of consumers' outlook on the economy, Tues., May 28, 10:00 am, ET.

The outlook of U.S. consumers could continue to improve, lifting the consumer confidence index up to a reading of 69.5 in May from 68.1 in the previous month.

2. JPY- Japan Retail Sales, an important gauge of consumer spending measuring sales at retail establishments, Tues., May 28, 7:50 pm, ET.

Consumer spending in Japan is not expected to gain traction with retail sales forecast to register an even bigger monthly drop by 0.4 m/m in April compared with the 0.3% m/m decline in March. A negative retail sales report should keep the yen under pressure on expectations of more aggressive easing by the Bank of Japan.

3. CAD- Bank of Canada Interest Rate Announcement, Wed., May 29, 10:00 am, ET.

Of all major central banks, the Bank of Canada looks as the most likely candidate to start raising rates, but the current macro-economic backdrop is not yet supportive of such move. With the competitive currency devaluation race heating up, the decision to call the end of the accommodative monetary policy would probably be pushed further into 2014/2015. The Bank of Canada is not expected to make any changes to its existing monetary policy at the May meeting and will more than likely leave the benchmark rate at the current 1.0% level. The Canadian dollar could continue to feel the pressure if the central bank hints that it is not in a hurry to tighten policy anytime soon.

4. CHF- Swiss GDP- Gross Domestic Product, the main measure of economic activity and growth, Thurs., May 30, 1:45 am, ET.

The Swiss economy could continue to weather the effects of the recession of its largest trading partner the euro-zone. First-quarter GDP is forecast to show the economy expanding by 0.2% q/q, same as the rate of growth in the previous quarter. If the report delivers a negative surprise similar to the unexpected drop in Q3 2012, the CHF could weaken as the market begins to price the probability of more action by the Swiss National Bank to weaken its currency.

5. USD- U.S. GDP- Gross Domestic Product, the main measure of economic activity and growth, Thurs., May 30, 8:30 am, ET.

After avoiding contraction in the final quarter of last year, the final reading of the U.S. GDP for the first quarter of 2013 is expected to confirm that the economy gained momentum and expanded by 2.5% q/a. Provided that there is no downward revision, the USD should benefit from accelerating U.S. economic growth which would raise the odds that the Fed might take the first step toward monetary policy tightening sooner rather than later.

6. USD- U.S. Pending Home Sales, a leading indicator of housing market activity measuring pending home sale contracts, Thurs., May 30, 10:00 am, ET.

Pending home sales in the United States are expected to increase for another month with the index forecast to rise by 1.6% m/m in April from 1.5% m/m in March.

7. JPY- Japan CPI- Consumer Price Index, the main measure of inflation preferred by the Bank of Japan, Thurs., May 30, 7:30 pm, ET.

No light at the end of the deflation tunnel seems to be the likely outcome of this report, as the Japanese national core inflation gauge drops by -0.4% y/y in April from -0.5% y/y in March. With the index remaining into deflation territory and staying far away from the Bank of Japan's 2% inflation target, the report could accelerate the trend of JPY weakness on expectations that the Bank of Japan might resort to even more aggressive measures to fight deflation and to spur economic growth by devaluing its currency.

8. EUR- Euro-zone HICP- Harmonized Index of Consumer Prices, the main measure of inflation preferred by the European Central Bank, and Euro-zone Unemployment Rate, Fri., May 31, 5:00 am, ET.

Inflation in the euro-area is forecast to bounce to 1.4% y/y in May from the larger than expected drop 1.2% y/y in April. The unemployment rate in the 17-nation euro-area is forecast to increase for another month to 12.2% in April from 12.1%. With unemployment at record highs and the inflation gauge firmly below the European Central Bank's 2% target, the EUR could be pushed lower as the odds of more easing by the European Central Bank increase.

9. USD- U.S. Personal Income and Outlays, a measure of consumer income and spending, released along with the PCE Price Index- the Fed's preferred gauge of inflation, Fri., May 31, 8:30 am, ET.

Consumer spending in the U.S. is forecast to rise by 0.2% m/m in April, same as the 0.2% m/m increase in March. The Fed's preferred core PCE Index could show inflation inching slightly higher by 0.1% m/m after staying flat in the previous month, but not enough to prompt the Federal Open Markets Committee to make sudden changes to its current monetary policy.

10. USD- U.S. Consumer Sentiment, the University of Michigan's monthly survey of 500 households on their financial conditions and outlook of the economy, Fri., May 31, 9:55 am, ET.

The preliminary estimate showed the consumer confidence index at a four-year high in May and the final reading could lift the index even higher to 84.1 from 83.7. A weekly sequence of upbeat U.S. economic data could raise the odds of an early reduction in the size of the Fed's asset purchases and could boost the greenback.

In the trading room today: Is a Significant JPY Correction Already Underway? As Chinese data disappoints and the Nikkei registers its biggest drop since the March 2011 Tsunami, we examine the factors behind the strengthening of the JPY and ponder if we may be witnessing the beginning of a significant correction of the yen’s recent losses, we analyze the sharp move lower in the USD/JPY currency pair, we monitor the anticipated bounce higher in the GBP/USD pair, we note the volatility in the EUR/USD currency pair, we highlight the market’s reaction to the FOMC Meeting Minutes, the Chinese PMI, the U.K. GDP, and the Euro-zone Composite PMI, we discuss new forecasts from Bank of Tokyo-Mitsubishi and UBS, and prepare for the trading session ahead.